How to Tackle Debt: Debt Snowball vs. Debt Avalanche

Which Repayment Strategy is Best for You?

When it comes to tackling debt, two of the most popular strategies are the Debt Snowball and the Debt Avalanche methods. While both can be effective, they approach debt repayment from different angles. Let’s break down each strategy, so you can decide which one fits your financial goals and personality best.

The Debt Snowball Method

The Debt Snowball method focuses on paying off your smallest debts first, regardless of interest rates. Here’s how it works:

  1. List your debts from smallest to largest.
  2. Make minimum payments on all but the smallest debt.
  3. Put any extra funds toward paying off that smallest debt.
  4. Once the smallest debt is paid, move on to the next smallest, and so on.

Why it works: This method is great for building momentum. As you knock out smaller debts, you’ll feel a sense of accomplishment and motivation, which can be incredibly encouraging for people who need quick wins to stay motivated.

Example: Let’s say you owe $500 on a credit card, $2,000 on a car loan, and $10,000 on a student loan. In this method, you would focus on paying off the $500 first, even if the others have a higher interest rate. The emotional boost from eliminating that first debt quickly keeps you motivated.

The Debt Avalanche Method

The Debt Avalanche method, on the other hand, prioritizes paying off debts with the highest interest rates first. Here’s how it works:

  1. List your debts from highest interest rate to lowest.
  2. Make minimum payments on all but the highest-interest debt.
  3. Put any extra funds toward paying off the highest-interest debt first.
  4. Once that’s paid, focus on the next highest, and so on.

Why it works: This method saves you the most money over time since you’ll pay less in interest. While it might take longer to feel the satisfaction of paying off an entire debt, you’ll ultimately save more.

Example: Using the same scenario, if the car loan has a higher interest rate than the credit card debt , you would prioritize paying off the $2,000 car loan first, even though it’s a larger amount than the credit card balance. While it might take longer to pay off the car loan fully, focusing on the higher interest rate means you’ll pay less in interest over time.

Which Repayment Strategy is Best for You?

Choosing between the two methods comes down to personal preference and what motivates you.

Choose the Debt Snowball if:

You’re motivated by quick wins and need that emotional boost to keep going. The satisfaction of paying off smaller debts first can be powerful, even if it means paying a bit more in interest in the long run.

Choose the Debt Avalanche if:

You want to save the most money over time. If you’re more focused on long-term savings and can handle waiting longer for the payoff, this is the strategy for you.

Combining the Two

There’s no rule saying you can’t combine both strategies!

Some people like to start with the Snowball method to gain initial momentum, then switch to the Avalanche method to tackle higher-interest debts. The most important thing is that you find a strategy that you can stick with for the long haul.

Remember: The best debt repayment strategy is the one that keeps you motivated, helps you stay on track, and aligns with your financial goals. Whether you prefer the quick wins of the Snowball or the long-term savings of the Avalanche, both methods can help you get out of debt and regain financial control.